Dear Author
My daughter is taking A Level Economics.
Kindly send copy of this presentation if
possible as it would add a high value to
my daughter for preparation.
Best Regards,
Anjum Fayyaz
anjumfayyaz@hotmail.com

Presentation Transcript

Slide1:

Background
to Supply

Background to Supply:

Background to Supply The Short-run Theory of Production

SHORT-RUN THEORY OF PRODUCTION:

SHORT-RUN THEORY OF PRODUCTION Profits and the aims of the firm
Long-run and short-run production:
fixed and variable factors
The law of diminishing returns
The short-run production function:
total physical product (TPP)
average physical product (APP)
APP = TPP/QV
marginal physical product (MPP)
MPP = TPP/QV

Wheat production per year from a particular farm (tonnes):

Wheat production per year from a particular farm (tonnes)

Wheat production per year from a particular farm (tonnes):

Wheat production per year from a particular farm (tonnes)

Wheat production per year from a particular farm (tonnes):

Wheat production per year from a particular farm (tonnes)

Wheat production per year from a particular farm (tonnes):

Wheat production per year from a particular farm (tonnes)

SHORT-RUN THEORY OF PRODUCTION:

SHORT-RUN THEORY OF PRODUCTION Profits and the aims of the firm
Long-run and short-run production:
fixed and variable factors
The law of diminishing returns
The short-run production function:
total physical product (TPP)
average physical product (APP)
APP = TPP/QV
marginal physical product (MPP)
MPP = TPP/QV
graphical relationship between TPP, APP and MPP

Wheat production per year from a particular farm:

Number of farm workers Wheat production per year from a particular farm Tonnes of wheat produced per year Number of
workers
0
1
2
3
4
5
6
7
8 TPP
0
3
10
24
36
40
42
42
40

Wheat production per year from a particular farm:

Number of farm workers Wheat production per year from a particular farm Tonnes of wheat produced per year Number of
workers
0
1
2
3
4
5
6
7
8 TPP
0
3
10
24
36
40
42
42
40

Wheat production per year from a particular farm:

Wheat production per year from a particular farm Number of farm workers Tonnes of wheat produced per year TPP b d

Wheat production per year from a particular farm:

Wheat production per year from a particular farm Number of
farm workers (L) Tonnes of wheat per year TPP Tonnes of wheat per year Number of
farm workers (L)

Wheat production per year from a particular farm:

Wheat production per year from a particular farm Tonnes of wheat per year TPP Tonnes of wheat per year MPP Number of
farm workers (L) Number of
farm workers (L)

Wheat production per year from a particular farm:

Wheat production per year from a particular farm Tonnes of wheat per year TPP Tonnes of wheat per year APP MPP Number of
farm workers (L) Number of
farm workers (L)

Wheat production per year from a particular farm:

Wheat production per year from a particular farm Tonnes of wheat per year TPP Tonnes of wheat per year APP MPP Number of
farm workers (L) Number of
farm workers (L)

Wheat production per year from a particular farm:

Wheat production per year from a particular farm Tonnes of wheat per year TPP Tonnes of wheat per year APP MPP b Number of
farm workers (L) Number of
farm workers (L) b

Wheat production per year from a particular farm:

Wheat production per year from a particular farm Tonnes of wheat per year TPP Tonnes of wheat per year APP MPP b b d d Number of
farm workers (L) Number of
farm workers (L)

Average and marginal physical product:

Marginal cost:

SHORT-RUN COSTS:

Marginal cost
marginal cost (MC) and the law of diminishing returns
the relationship between the marginal and total cost curves SHORT-RUN COSTS

Total costs for firm X:

TC TVC TFC Total costs for firm X

SHORT-RUN COSTS:

Marginal cost
marginal cost (MC) and the law of diminishing returns
the relationship between the marginal and total cost curves
Average cost SHORT-RUN COSTS

SHORT-RUN COSTS:

Marginal cost
marginal cost (MC) and the law of diminishing returns
the relationship between the marginal and total cost curves
Average cost
average fixed cost (AFC) SHORT-RUN COSTS

SHORT-RUN COSTS:

Marginal cost
marginal cost (MC) and the law of diminishing returns
the relationship between the marginal and total cost curves
Average cost
average fixed cost (AFC)
average variable cost (AVC) SHORT-RUN COSTS

SHORT-RUN COSTS:

Marginal cost
marginal cost (MC) and the law of diminishing returns
the relationship between the marginal and total cost curves
Average cost
average fixed cost (AFC)
average variable cost (AVC)
average (total) cost (AC) SHORT-RUN COSTS

SHORT-RUN COSTS:

Marginal cost
marginal cost (MC) and the law of diminishing returns
the relationship between the marginal and total cost curves
Average cost
average fixed cost (AFC)
average variable cost (AVC)
average (total) cost (AC)
relationship between AC and MC SHORT-RUN COSTS

Average and marginal costs:

Output (Q) Costs (£) Average and marginal costs

Background to Supply:

Background to Supply The Long-run Theory of Production

LONG-RUN THEORY OF PRODUCTION:

LONG-RUN THEORY OF PRODUCTION All factors variable in long run
The scale of production:
constant returns to scale
increasing returns to scale
decreasing returns to scale

An isocost:

ISOQUANT- ISOCOST ANALYSIS:

ISOQUANT- ISOCOST ANALYSIS Isoquants
their shape
diminishing marginal rate of substitution
isoquants and returns to scale
isoquants and marginal returns
Isocosts
slope and position of the isocost
shifts in the isocost

ISOQUANT- ISOCOST ANALYSIS:

Least-cost combination of factors for a given output
point of tangency ISOQUANT- ISOCOST ANALYSIS

Finding the least-cost method of production:

Units of labour (L) Units of capital (K) Finding the least-cost method of production

Finding the least-cost method of production:

Units of labour (L) Units of capital (K) Finding the least-cost method of production

ISOQUANT- ISOCOST ANALYSIS:

Least-cost combination of factors for a given output
point of tangency
comparison with marginal productivity approach ISOQUANT- ISOCOST ANALYSIS

ISOQUANT- ISOCOST ANALYSIS:

Least-cost combination of factors for a given output
point of tangency
comparison with marginal productivity approach
Highest output for a given cost of production ISOQUANT- ISOCOST ANALYSIS

Finding the maximum output for a given total cost:

TPP2 TPP3 TPP4 TPP5 Units of capital (K) Units of labour (L) O TPP1 Finding the maximum output for a given total cost

Finding the maximum output for a given total cost:

O Units of capital (K) Units of labour (L) TPP2 TPP3 TPP4 TPP5 TPP1 Finding the maximum output for a given total cost

Finding the maximum output for a given total cost:

O Units of capital (K) Units of labour (L) TPP2 TPP3 TPP4 TPP5 TPP1 Finding the maximum output for a given total cost

Finding the profit-maximising output using marginal curves:

PROFIT MAXIMISATION:

PROFIT MAXIMISATION Using total curves
maximising difference between TR and TC
the total profit curve
Using marginal and average curves
stage 1: profit maximised where MR = MC
stage 2: using AR and AC curves to measure maximum profit